TaxTMI 
TaxTMI 
2019 (12) TMI 958
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....ent years, common and identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. Although, these appeals filed by the Revenue and the assessee contain multiple grounds of appeal. However, at the time of hearing, we have carefully perused all the grounds raised by the assessee as well as the Revenue. We find that most of the grounds raised by the assessee as well as the Revenue are either academic in nature or contentious in nature. However, to meet the ends of justice, we confine ourselves to the core of the controversy and the main grievance of the assessee and the Revenue as well. With this back ground, we summarise and concise the grounds raised by the Revenue as well as the assessee as follows : (1) Ground No. 1 raised by the assessee in I. T. A. No. 937/Kol/2018, for the assessment year 2010-11 and ground Nos. 1 and 2 raised by the Revenue in I. T. A. No. 1439/Kolkata/2018 for the assessment year 2010-11 are common and identical and relate to the disallowance under section 14A read with rule 8D(2)(ii) and 8D(2)(iii) of the Income-tax Rules, 1962. ....
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....in I. T. A. No. 1439/Kolkata/2018, for the assessment year 2010-11 are common and identical and relate to the disallowance under section 14A read with rule 8D(2)(ii) and 8D(2)(iii) of the Income-tax Rules, 1962. Note : To adjudicate this summarised and concise ground No. 1, we take the lead case of the Revenue's appeal in I. T. A. No. 1439/Kolkata/ 2018, for the assessment year 2010-11. 7. The brief facts qua the issue are that on verification of the accounts of the assessee, it was noted by the Assessing Officer that the assessee-company earned interest from tax-free bonds (exempt income) of Rs.N1,32,09,652, and dividend income of Rs. 5,13,16,782. In its computation of income, the assessee-company has suo motu offered an amount of Rs. 91,07,352, as disallowance under the said section. The computation of disallowance under section 14A read with rule 8D, as offered by the assessee-company is reproduced hereunder for the sake of clarity and convenience. 1. Average investment in shares on which dividend was received 46,43,51,330 2. Average investment in mutual funds on which dividend was received 1,22,79,81,089 3. Average investment in bon....
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....tment, the income from which does not or shall not form part of the total income ; in the assessee's case this amount is Rs. 251,83,22,935. Therefore, this component of disallowance would be Rs. 1,25,91,615 Therefore, the total disallowance under rule 8D of the Income-tax Rules read with section 14A of the Income-tax Act, was worked out to Rs. 7,40,76,948 [(i) + (ii)+ (iii) = Rs. 56,181 + Rs. 6,14,29,152 + Rs. l,25,91,615 = Rs. 7,40,76,948] The assessee-company, as discussed above, has offered suo motu an amount of disallowance to the tune of Rs. 91,07,352 in its computation of income. Therefore, the disallowance here is restricted to the tune of Rs. 6,49,69,596 (Rs. 7,40,76,948 -Rs. 91,07,352 = Rs. 6,49,69,596. 8. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals), who has partly allowed the appeal of the assessee. Aggrieved, the Revenue is in appeal before us. 9. Before us, the learned Departmental representative for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being....
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....the said investment is made out of own funds. To buttress this plea, we rely on the judgment of Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), wherein it was held as follows (headnote) : "The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of Rs. 213 crores was invested out of its own funds and Rs. 147 crores was invested out of borrowed funds. Accordingly, he disallowed interest amounting to Rs. 4.40 crores calculated at 12 per cent. per annum for three months from January, 2000 to March, 2000. The Commissioner (Appeals) found that the assessee had enough interest-free funds at its disposal for investment and accordingly deleted the addition of Rs. 4.40 crores made by the Assessing Officer and directed him to allow the deduction under section 36(1)(iii). The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free ....
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....ead "other expenditure". During the course of hearing, the assessee-company was asked to explain and show cause as to why the said amount should not be disallowed being the expenses of the prior period not related to the year under consideration. In response, the assessee explained the Assessing Officer that the said expenses were crystallised during the year under consideration and there fore, the same should be allowed. However, the Assessing Officer rejected the contention of the assessee and made addition to the tune of Rs. 4,06,487. 15. On appeal, the learned Commissioner of Income-tax (Appeals) confirmed the addition made by Assessing Officer. Aggrieved, the assessee is in appeal before us. 16. Before us, the learned Departmental representative for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the learned counsel for the assessee has relied on the submissions made before the authorities below. 17. We have heard both the parties and perused the material available on record, we note that the aforesaid e....
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....le Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT reported in [1995] 213 ITR 523 (Guj) wherein it was held as follows (page 53) : "Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallised in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis it has to be found in respect of any claim, whether such liability was crystallised and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year." Since the bills were not received, it was not possible to make provi sions for such e....
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....herefore, the loan should be treated as given for business purposes and in view of the hon'ble Supreme Court's decision in the case of S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC), no disallowance of interest is called for on account of alleged diversion of fund collected from the certificate holders." However, the Assessing Officer rejected the contention of the asses see and the proportionate disallowance of interest on the said loan calcu lated at the rate of 5 per cent. (which is given by the assessee to its certificate holders) worked out to be Rs. 82,78,301 was disallowed by the Assessing Officer. 20. On appeal, the learned Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. 21. Before us, the learned Departmental representative for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the learned counsel for the assessee has relied on the submissions made before the authorities below. 22. We have heard b....
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....ellate Tribunal, Kolkata. The appeal of the Revenue was dismissed and it was held by the co-ordinate Bench as follows : "Keeping in view all these facts of the case and applying the rule of consistency, we uphold the impugned order of the learned Commis sioner of Income-tax (Appeals) deleting the disallowance made by the Assessing Officer on account of interest allegedly attributable to the interest-free loans given by the assessee-company to its subsidiary companies and dismiss ground No. 3 of the Revenue's appeal." Since this ground of the Revenue has already been adjudicated by the co-ordinate Bench in the assessee's own case for the assessment year 2009-10, and there being no change in the facts of the case and law in the present assessment year, therefore, we dismiss the appeal of the Revenue. 23. We take summarised and concise ground No. 4, which reads as follows : "(4). Ground No. 4 raised by the Revenue in I. T. A. No. 1439/ Kolkata/2018, relates to the disallowance of compensation of Rs. 11,00,000 paid to M/s. Conforms Pvt. Ltd, a related company under section 40A(2)(b) of the Act without calling for remand report." 24. The brief fa....
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.... (b) and in such respect the learned counsel for the assessee has contended that the Assessing Officer has nowhere brought on record the fair market value (FMV) of the compensation so paid in terms of section 40A(2)(a) and (b), to prove the excess so paid by the assessee to such company. The payment was made in respect of vacation of the property so occupied by such company. We find substance in the learned counsel's argument that the payment was made by the assessee after much negotiation and it was a separate entity and correspondences had occurred between the assessee and the said company to settle the amount. Even if the agreement was not there but the relevant correspondences duly prove that the payment was for the vacation of the impugned premises which was vacated by the said company. Hence, it is in accordance with the business of the assessee and the same is allowable. That being so, we decline to interfere with the order of the learned Commissioner of Income-tax (Appeals) in deleting the aforesaid addition. His order on this issue is, therefore, upheld and the grounds of appeal of the Revenue is dismissed. 28. Now, we shall take summarised and concise ground No. 5,....
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....nt order is erroneous and the prejudicial of the Revenue. The Principal Commissioner of Income-tax, Kolkata-I, Kolkata passed an order under section 263 dated March 19, 2015 restoring back to the file of the Assessing Officer set asiding the issue." A show cause letter dated July 22, 2015 was issued to the assessee requesting to explain the issue, in response the assessee submitted a letter on July 29, 2015 stating that the assessee preferred an appeal before Income-tax Appellate Tribunal against the order of the learned Principal Commissioner of Income-tax. Since the explanation of the assessee was not adequate therefore the assessee was asked to submit the proper explanation. In response, the assessee submitted explanation on November 30, 2015 stating that even if the effect of the order under section 263 was given there is no impact on the total income and till date that capital loss not utilised in subsequent years. It appeared to the Assessing Officer that the assessee did not have proper explanation to submit in response of the wrong claim of long-term capital gains as mentioned above. Under this circumstances, the long-term capital gains was being ....
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....ther before or after the commencement of this Act by the Central Government or a State Government for the purpose of raising a public loan and having one of the forms specified in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944). Further, section 2(2) of the Public Debt Act, 1944 defines "Govern ment security" as follows : "Government security" means- (a) a security, created and issued, by the Government for the purpose of raising a public loan, and having one of the following forms, namely :- (i) stock transferable by registration in the books of the bank ; or (ii) a promissory note payable to order ; or (iii) a bearer bond payable to bearer ; or (iv) a form prescribed in this behalf ; (b) any other security created and issued by the Government in such form and for such of the purposes of this Act as may be prescribed." The Government securities which were sold during the year were stocks being of the nature described in clause (i) to section 2(a) of the Public Debt Act, 1944. The third proviso to section 48 of the Act restricts the indexation in the case of long-term capital asset....
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....securities the same, there would have been no need to define both these terms differently. The learned Assessing Officer and the learned Commissioner of Income-tax (Appeals) had not disputed the fact that the assessee has transacted in Government securities but have only alleged that these Government securities are in the nature of bonds and debentures on which indexation benefit under section 48 of the Act is not applicable. During the course of appellate proceedings, the above definitions were explained before the learned Commissioner of Income-tax (Appeals). 34. We note that it was also submitted during the appellate proceedings that the learned Principal Commissioner of Income-tax in his order under section 263 dated March 19, 2015 had not discussed any of the contentions of the assessee claiming that Government securities are not bonds and debentures. In the said order, he has not given any finding either accepting or denying the contentions of the assessee. On the other hand, in the said order passed under section 263, he had concentrated only on the technical aspect that the assessment order for the assessment year 2010-11 was erroneous and prejudicial to the interests of....
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....ee is found to have purchased and sold the said Govern ment securities through the secondary market, i. e., LKP Securities Ltd. and bankers, i. e., United Bank of India as per copy of confir mations placed on record by the assessee. Hence, in my considered opinion, the Government securities in question, viz., GS-2010 & GS-2012 are also bonds, as per this definition of bond as enunciated by various authorities, including the guidelines of the RBI." The learned Commissioner of Income-tax (Appeals), has finally relied on a decision of the hon'ble Tribunal Ahmedabad Bench in the case of Areez P. Khambatta in I. T. A. No. 795/Ahd/2009 for the assessment year 2005-06 dated December 9, 2011, wherein the Tribunal examined the question whether UTI MIP-59 carrying fixed amount of interest was a bond and debenture. It was held that aforesaid financial instrument was bond and therefore no benefit of indexation would be available to the assessee because the case was hit by the third proviso of section 48 of the Act. But the said order of the Tribunal did not throw any light on the dispute in the present case, i. e., whether the Government securities are bonds and debentures. The fa....
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....India which is not a Government entity. UTI Mutual Fund is promoted by the four of the largest public sector financial institutions as sponsors, viz., State Bank of India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank with each of them holding an 18.24 per cent. stake in the paid up capital of Unit Trust of India AMC. However, in the present case, the assessee has transferred Government securities floated by the Central Government. In this case cited by the Commissioner of Income-tax (Appeals), there is no reference of Government securities, as such the facts of this are clearly distinguishable from the present case. Most importantly, to buttress the contention that "indexation benefits are available on sale of the Government securities" we rely on the judgment of the co-ordinate Bench of the Chennai Tribunal in the case of Sundaram Finance Limited v. Asst. CIT (LTU) [2017] 165 ITD 563 (Chennai) wherein on identical facts it was held that Government Securities are entitled to indexation. The detailed facts and findings are given below : "Facts of the case Capital gains-Short term and long-term capital assets and short-term and lon....
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....curities are not excluded for indexation benefit only bond or debenture included in the third proviso to section 48. Therefore, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and the same is upheld." Based on the factual position discussed above, we note that as per section 2(42A) expression "security" shall have meaning assigned to clause II of the Securities Contracts Regulation Act, 1956 which includes Government securities. The facts of this case are squarely applicable to the present case of the assessee. Therefore, respectfully following the judgment of the co-ordinate Bench in the case of Sundaram Finance Limited (supra) we note that it is abundantly clear that the Government securities are entitled to indexation benefits. Therefore, we note that the Government securities are different from bond and debenture for the purpose of the third proviso to section 48 of the Act (4th proviso after amendment) and therefore the benefit of indexation should be granted to the assessee on the redemption of these Government securities. 36. In the result, appeal of the assessee in I. T. A. No. 938/Kolkata/2018, is allowed. 37. Ad....